Werbungskosten (deductible expenses) are all costs directly related to earning rental income. They reduce your taxable income euro-for-euro, making them incredibly valuable for real estate investors.
What Counts as Deductible?
German tax law allows you to deduct a wide range of expenses:
Financing Costs:
- • Mortgage interest
- • Loan processing fees
- • Early repayment penalties
Property Costs:
- • Property tax (Grundsteuer)
- • Building insurance
- • Property management fees
Maintenance & Repairs:
- • Repairs and maintenance
- • Renovations (sometimes)
- • Garden/cleaning services
Operating Costs:
- • Utilities (if not passed to tenant)
- • HOA fees (Hausgeld)
- • Legal/accounting fees
AfA: The King of Deductions
While all Werbungskosten are valuable, AfA (depreciation) stands out because:
- It's typically an €8,000-12,000/year deduction for most properties
- It doesn't require any cash outflow (unlike repairs or interest)
- It continues for 50 years
Real Example: Annual Deductions
€450,000 Investment Property:
- AfA (2% of €360k building value):€7,200
- Mortgage interest (4.4% of €405k):€17,820
- Property management (10% of rent):€1,800
- Insurance + property tax:€1,200
- Maintenance reserve:€1,500
- Total deductions:€29,520
If you're in the 42% tax bracket: €12,398 in tax savings
Important Rules
- Keep all receipts: You must document every expense
- Repairs vs. improvements: Repairs are fully deductible immediately; major improvements must be depreciated
- Personal use disqualifies you: Property must be rented out, not used personally